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Entrepreneurial School Dropouts: A Model on Signalling, Education and Entrepreneurship

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  • Baumgarten Skogstrøm, Jens Fredrik

    (Ragnar Frisch Centre for Economic Research,)

Abstract

I present a theory on the relationship between educational choice and entrepreneurship in a labour market with asymmetric information. The model shows that, in a labour market where education is used as a signalling device, an imperfect relationship between productivity in education and in the labour market can lead to an equilibrium where a fraction of the high-ability individuals choose to quit school and become entrepreneurs. Using a comprehensive set of Norwegian register data, I find that this is prediction is confirmed empirically: Individuals combining low education with high ability have the highest entrepreneurship rates in the population.

Suggested Citation

  • Baumgarten Skogstrøm, Jens Fredrik, 2012. "Entrepreneurial School Dropouts: A Model on Signalling, Education and Entrepreneurship," Memorandum 10/2012, Oslo University, Department of Economics.
    • Handle: RePEc:hhs:osloec:2012_010
    as

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    File URL: https://www.sv.uio.no/econ/english/research/unpublished-works/working-papers/pdf-files/2012/Memo-10-2012.pdf
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Entrepreneurship; self-employment; education; ability;
    All these keywords.

    JEL classification:

    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship
    • M13 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - New Firms; Startups

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